Revenue up but profit down at Blue Label

Feb 25, 2010

In the face of tough economic conditions, Blue Label Telecoms has continued to show good revenue growth. However, the company has experienced a decline in profits due to a higher expense burden and a number of external factors.

Blue Label Telecoms released interim results to 30 November 2009 yesterday, revealing an 11% increase in revenue to R8,4 billion, but a 6% decline in net profit over the comparable period in 2008. Headline earnings per share fell 10%, from 26,06 cents to 23,38 cents. The company attributed this decline to the lower interest received on its cash reserves, impairments in goodwill and intangibles, and the reversal of an element of deferred tax assets. The increase in cash on hand, however, provides some reassurance of the company's ability to continue on its growth path."As the leading supplier of pre-paid cards for telecommunications and electricity, Blue Label Telecoms has been able to take advantage of consumers' ability to budget their expenditure through the pre-paid channel during hard economic times," notes Frost & Sullivan ICT industry analyst Protea Hirschel. "However, the company's business is tied to the fortunes of the operators for whom it provides pre-paid solutions."South African distribution remained the major contributor to group revenue and core net profit. It realised 7% revenue growth to R7,6-billion and 11% growth in core net profit to R288,2-million. Recent results suggest that growth in revenue in the telecommunications sector, at least, may be slowing in South Africa, as the market becomes increasingly saturated. "As a volume business with low margins, Blue Label Telecoms' challenge is to maintain these volumes while managing operating costs and working capital across all its business lines," Hirschel says. "New offerings in its value-added portfolio are expected to help address these challenges."She adds that Blue Label's expansion strategy into emerging markets has allowed the company to diversify the country risks that it is exposed to. Revenue from Blue Label's international distribution climbed by 139% over the comparable period to R674,9-million. This was entirely attributable to Africa Prepaid Services Nigeria. Core net profit from international distribution was R1,4 million, only a marginal contributor to the company's total operational profit of R287-million. "While showing a welcome improvement, the results from the international distribution businesses remain somewhat disappointing," Hirschel says. "However, Frost & Sullivan expects the international segments to come into their own in future."